Posts Tagged ‘Recessions’



Courtesy of The Pragmatic Capitalist

Pedro Amaral of the Cleveland Fed wrote an excellent piece in today’s “Economic Trends” on the state of the recovery and the cause of the slower than normal recovery.  His conclusions are exactly in-line with my own: we are in a balance sheet recession that is largely caused by the implosion of the household balance sheet:

“The chart below shows the behavior of households’ (and nonprofit organizations’) net worth in the last six recessions. It is apparent that in the last two the damage to households’ balance sheets was both deeper with and more protracted than in the previous episodes. What was behind the drop in the latest recession? During this period, liabilities were roughly constant, so the drop happened because of declines in asset values caused by the real-estate collapse and the subsequent depreciation in financial assets. In the 2000 recession the drop was due to the stock market collapse. In contrast, in the twin recessions of the early 1980s, net worth never decreased, and in the early 1990s it dropped only about 2 percent.”


“The drops in household net worth help explain the protracted recoveries after the last two recessions. Personal consumption expenditures are the single biggest component of GDP at around 70 percent. If there is to be a solid recovery, consumption needs to increase at a substantially higher rate than the 1.7 percent it has averaged over the last year. But households are not going to start consuming at substantially higher rates until they have fixed their balance sheet problems. This is why the savings rate has been so high lately: Households are working hard at improving their wealth to income ratios at the expense of consumption. In previous recessions, since net worth did not fall by a substantial amount, this was not a problem. As incomes started growing again, consumption followed suit. Right now, an important part of that income growth is being channeled to savings. As the chart above illustrates, net worth is still well below prerecession levels and, barring an increase in asset prices (real-estate prices or stock market prices), the only way to increase it is by saving more and consuming less, further delaying the recovery.”

His conclusion, clearly, is similar to my own.  We will not see above trend growth until the consumer balance sheet is…
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Courtesy of The Pragmatic Capitalist 

Chatter of a “recovery” is back on the table after the markets schizophrenic actions in recent days. It’s amazing how quickly sentiment can change from tremendously bearish to tremendously bullish. Interesting lot us human beings are….Highlighted in this “recovery” talk was the “better than expected” jobs data.  Jobless claims were “better than expected”, ISM manufacturing employment data hit news highs (although services, which is a MUCH larger portion of the economy declined) and the non-farm payrolls report capped off the week with a “better than expected” report.  But if we take a step back here and look at the big picture you’ll actually notice that there has been ZERO recovery in the labor market.  Unemployment has actually deteriorated when compared to the end of past recessions. Without a recovery in the labor markets I think it’s impossible to say that the economy is rebounding.  As of now, the outlook remains negative.




Source: Center on Budget and Policy Priorities

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Initial Jobless Claims Jump while Philly Fed Signals Economic Contraction

Initial Jobless Claims Jump while Philly Fed Signals Economic Contraction

Courtesy of Rom Badilla, at

Falling Businessman

The Philadelphia Federal Reserve released its manufacturing survey for August, which suggests economic contraction and may lead the Federal Reserve to promote additional stimulus measures.  The Philadelphia Federal Reserve Outlook survey or simply “Philly Fed” for August plummets to a negative reading of 7.7 versus economists’ surveys of +7.0.  This marks the third consecutive decline after the outlook survey peaked in May at 21.40.

Behind the headlines, components that represent economic growth were especially weak.  Specifically, New Orders dropped further into negative territory to -7.1 from a prior month’s reading of -4.3.  Inventories fell from +4.5 in July to -11.6 while the Number of Employees component dropped from 4.0 to an August reading of -2.7.

Inflation expectations should remain subdued and keep bond yields in check as price pressures fall, judging by some of the Philly Fed components.  Prices Paid dropped from +13.1 in July to +11.8.  In addition, the Prices Received component continues to drive deeper into negative territory.  The Prices Received component fell to -12.5 following prints of -6.5 and -8.4 in June and July, respectively.

The Philadelphia Fed numbers carry significant weight since the index is heavily correlated to the ISM manufacturing index and the index of industrial production, which both measure the health of U.S. economic activity.  ISM Manufacturing should it fall below 50 in the coming months may lead the Federal Reserve to act in providing stimulus measures via Quantitative Easing.

The number of people in the U.S. filing for employment benefits increased last week according to the Department of Labor. Initial Jobless Claims for the week ending August 14 jumped to 500k people.  The number of people who recently became unemployed and are now accessing government benefits was revised upward in the previous week by four thousand to 488k.  The increase, which the highest reading since November of 2009, highlights the beginning of deterioration of the employment landscape in the last few weeks as economists were expecting a reading of 478k.  Furthermore, the 4-week moving average, which is used to smooth out volatility to establish a better reading of trends, continues to inch higher to 482,500 people and is on the higher end of the recent range of 450-500k that has been established since last November.  With this in mind, the number is…
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About that recovery you ordered

About that recovery you ordered

Courtesy of James D. Hamilton at Econbrowser 

"We have met the enemy and he is us," Pogo used to say. Well, we’ve also now met the recovery, and he is ugly.

The Bureau of Economic Analysis reported today that U.S. real GDP grew at an annual rate of 2.4% during the second quarter. The latest GDP numbers bring our Econbrowser Recession Indicator Index for 2010:Q1 down to 5.4%. This index is based on a very simple pattern-recognition algorithm for characterizing economic recessions. It is not a prediction of where the economy is headed, but rather a backward-looking assessment of where the economy stood as of the first quarter, using today’s 2010:Q2 data release to help inform that assessment.

University of Oregon Professor Jeremy Piger maintains a related index which has been at or below 1% for each month so far of 2010, while the most recent value calculated by U.C. Riverside Professor Marcelle Chauvet‘s algorithm is 7.8%. All three approaches agree that the economy remains in a growth phase that began in the third quarter of last year. A subsequent economic downturn would be described as the beginning of a new recession rather than a continuation of the previous recession.

 GDP-led Recession

*The plotted value for each date is based solely on information as it would have been publicly available and reported as of one quarter after the indicated date, with 2010:Q1 the last date shown on the graph. Shaded regions (with the exception of 2007:Q4-2009:Q2) represent dates of NBER recessions, which were not used in any way in constructing the index, and which were sometimes not reported until two years after the date. The most recent recession is shown on the graph as ending in 2009:Q2 as implied by the index; as of this writing the NBER has not yet assigned an end date for this recession.

But a pretty recovery it’s not. The economy has grown by 3.2% in real terms over the last year, about the average annual historical growth rate since World War II. But since recessions are characterized by below-average growth, expansions should typically exhibit above-average growth, and particularly in the first year of an expansion we often see very strong growth as a result of the positive contribution…
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Some Thoughts on Deflation

Some Thoughts on Deflation

Courtesy of John Mauldin at Thoughts from the Frontline 

CHICAGO - DECEMBER 13: An inflatable bear is deflated after player introductions before a game between the Chicago Bears and the Green Bay Packers at Soldier Field on December 13, 2009 in Chicago, Illinois. The Packers defeated the Bears 21-14. (Photo by Jonathan Daniel/Getty Images)

Some Thoughts on Deflation
The Super-Trend Puzzle
The Elements of Deflation
Maine, New York, Turks and Caicos, and Europe

The debate over whether we are in for inflation or deflation was alive and well at the Agora Symposium in Vancouver this this week. It seems that not everyone is ready to join the deflation-first, then-inflation camp I am currently resident in. So in this week’s letter we look at some of the causes of deflation, the elements of deflation, if you will, and see if they are in ascendancy. For equity investors, this is an important question because, historically, periods of deflation have not been kind to stock markets. Let’s come at this week’s letter from the side, and see if we can sneak up on some answers.

Even on the road (and maybe especially on the road, as I get more free time on airplanes) I keep up with my rather large reading habit. This week, the theme in various publications was the lack of available credit for small businesses, with plenty of anecdotal evidence. This goes along with the surveys by the National Federation of Independent Businesses, which continue to show a difficult credit market.

Businesses are being forced to scramble for needed investments, generally having to make do with cash flow and working out of profits. This is an interesting quandary for government policy makers, as 75% of the "rich" that will see the Bush tax cuts go away are small businesses.

There was a great graphic (that I now cannot find) showing that all net new jobs of the past two decades have come from small businesses and start-ups. And yet as of now, when structural employment is over 10% (if you count those who were considered to be in the work force just a few months ago), we want to reduce the availability of revenues to the very people we want to be hiring new workers, and who are cash-starved as it is.

It is not just that taxes will go from 35% to just under 40%. It is the increase in Medicare taxes coming down the pike, too. We are taking money from private hands, where it has the potential…
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The Dismal Science Really Is

The Dismal Science Really Is

Courtesy of John Mauldin at Thoughts from the Frontline 

Some Really Dismal Numbers 
Unemployment Went Down? 
Earnings Take a Hit 
Money Supply Concerns 
A Central Banker’s Nightmare 
Why Don’t You Reform Yourselves?

There’s a reason economics is called the dismal science, and weeks like this just give it further meaning. In economics, there is what you see and what you don’t. This week we are going to examine the headline data we all see and then take a look for what most observers do not see. Then we’ll try to think about what it all really means. With employment, housing, and the ISM numbers, there is a lot to cover. And this letter will print out longer than usual, as there are a lot of charts. Warning: remove sharp objects from the vicinity and pour yourself your favorite adult beverage. This does not make for fun reading.

Some Really Dismal Numbers

The unemployment numbers this morning were just bad, even though the spin doctors were out in force. Of course we knew that because of census workers being laid off the number would be negative, and it was, down 125,000. But the "bright spot" we were told about was that private payrolls came in at 83,000 new jobs. Let’s look at what you did not see or hear.

First, last month’s dismal (there’s that word again) private job-creation number was revised down from 41,000 to 33,000. So in two months, total private job creation is 116,000 jobs. We need 125,000 jobs per month just to keep up with population growth.

But it is worse than that. The headline number we look at is from the Establishment Survey. That means they call up existing businesses they know about and ask them how many people are working for them, etc. One of the first things I do when the employment numbers come out is look at the birth/death assessment on the BLS (Bureau of Labor Statistics) web site.

For new readers, the birth/death assessment has nothing to do with people dying, but rather is the BLS’s attempt to estimate the number of new businesses that have been created or have "died" within the last month, and they use these numbers to adjust the employment total. They use historical, seasonal numbers to create a model from which they make these estimates. There is nothing conspiratorial about the…
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The mindset will not change; a depressionary relapse may be coming

The mindset will not change; a depressionary relapse may be coming

Courtesy of Edward Harrison at Credit Writedowns 

When former Morgan Stanley chief Asian economist Andy Xie comments on the United States, he focuses on a bailout nation keen on perpetuating a bubble economy predicated on malinvestment and overconsumption.  In this he sees parallels with Japan and its long malaise.

Japan has experienced two decades of economic stagnation since the collapse of the infamous bubble it suffered in the 1980s. The most popular explanations are that Tokyo wasn’t aggressive enough in stimulating the economy after the bubble burst, or that it withdrew its stimulus too early – or both. This line of thinking is popular among elite economists in the US, where it is rarely challenged. But few Japanese analysts buy it…

The argument to "stimulate until prosperity returns" is popular because it doesn’t hurt anyone in the short term. When a central bank prints money, its nasty consequence — inflation — takes time to show up. When a government spends borrowed money, repayment is in the future. Nobody feels the pain now. Indeed, when debt is sufficiently long-dated, nobody alive need feel the pain. So analysts who advocate stimulus are popular with politicians because it sounds like a free lunch. Japan’s tale is just a nice story that seems to support the argument…

Japan has run up the national debt equal to 200% of GDP — the greatest Keynesian stimulus program in history — all in the name of stimulating the economy back to health. It has failed miserably. Japan’s nominal GDP is about the same as when the stimulus began. Those who advocated the policy blame Japan’s failure on either the stimulus being too small or not being sustained for long enough – that is, the dosage, not the medicine itself, was at fault.

The bankruptcy of Japan Airlines is a sobering reminder of what is still wrong with Japan. It stayed with unprofitable routes for years without its creditors or shareholders being able to do anything about it. And by making credit cheap and easy, the stimulus prolonged the airline’s business model — actually,

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Is Gold Getting Bubbly?

Yesterday I posted an article by RICK BOOKSTABERThe Gold Bubble, in the Favorites. Having no opinion on the short or long term movement in the price of gold, I thought Rick’s article was thought-provoking, as he reasonably questioned the mass and loudish flow of money into gold investments.

Man holding glowing gold orbs

Zero Hedge also posted the article, with a more critical introduction. I then perused ZH’s comment section to find a lot of animosity towards Rick’s opinion, even directed at his character (he works for the SEC!). The highly emotional tone surprised me, indicating a core belief was being challenged, as opposed to the fun and discovery of an intellectual debate.  (Maybe this is typical in comment sections.)

Anyway, in this article, Nico Isaac also questions the faith many people have placed in GOLD as the next safety net against the ruin of our financial system.  

For more on gold from EWI, download Robert Prechter’s FREE 40-Page Gold and Silver eBook.  Ilene 


Gold: Best Supporting Role In Economic Downturns? Think Again

Gold’s safe-haven status is based on hype, not history 

Courtesy of EWI, by Nico Isaac

As I sat down to watch the Oscar pre-show on Sunday night, March 7, one word was repeatedly used to describe the celebrity starlets and their designer duds: GOLD. Gold bustiers and gold lame skirts, shiny gun-metal dresses and glittery sequined gowns all basking in the golden shadow of the final golden statue.

Everywhere you look, from the Red Carpet to Wall Street, gold is definitely in "fashion." As for why, one word comes to mind: safe-haven. See, according to the mainstream financial experts, the more unstable the global economy, the greater the appeal for the precious metal.

And, with a staggering 17% unemployment rate in the United States, alongside slumping real estate sales, Eurozone weakness, the Greece debt debacle, and so on — the only thing going up is gold’s supposed disaster premium. Here, take these recent news items for example:

  • "Bullion Sales Hit Record In Stampede To Safety." (Financial Times)
  • "Gold Ticks Higher On Safe Haven Buying. The risk trade is resuming." (AP)
  • "Gold Rose to 6 ½ Week Highs as the metal benefits from fears over financial instability in general. The market is looking for some security with gold." (Reuters)
  • "Gold Rush: This is a new round of safe haven buying." (Bloomberg)

There’s just one problem: The correlation between a falling…
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Why Our Economy Is Utterly Screwed

Why Our Economy Is Utterly Screwed

Courtesy of Karl Denninger at The Market Ticker

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economic cyclesCourtesy of The Pragmatic Capitalist

Regular readers know that I am a huge fan of Richard Russell’s work.  For those who aren’t familiar with Russell, he is the author of The Dow Theory letters.   Obviously, he is a student of Dow Theory (perhaps professor is more appropriate).  Most importantly though Russell is about as experienced an investor as you’ll find on the planet.  He has lived through cycles that no one else can even remember.

I like to think that the market works on a different clock from the rest of the world.  Economic cycles are often long and drawn out.  It can be hard for humans to comprehend economic cycles because the length of an economic cycle is not based in years or months.  It can literally work on its own clock.  The current deleveraging cycle is particularly frustrating for investors because these types of recessions tend to be long and drawn out unlike your average 8-16 month recession.  A full economic cycle can be anywhere from 5 years to 25 years from peak to trough.  Humans, particularly investors, have trouble seeing past the next 5 to 25 minutes.  It’s safe to say that Mr. Russell has seen more cycles than anyone and his educational and priceless commentary is evidence of this.  I’ve included some of his notes from this latest week and highly recommend his newsletter.  His ability to grasp the big picture is truly unmatched:

Question — Russell, you seem to think this is going to be a world-class bear market. Why do you think that?

Answer — The US and its people have been borrowing and leveraging for decades or ever since WW II. There’s never been a true correction in the economy, although there have been corrections in the stock market (1973-74 and 1957-58). Consumer buying makes up 70% of the Gross National Product of the US. For the first time in decades, US consumers are dealing with massive unemployment. This is scaring them and causing them to cut back in their buying and now they are actually saving. Fear is the strongest of all human emotions, and US consumers are finally dealing with naked fear. I believe this fear will bring on years of saving and a long period

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Phil's Favorites

John Mauldin: Trade Wars Could Trigger "The Next Great Depression"

Courtesy of Zero Hedge

Last week on Erik Townsend's Macrovoices podcast, Jim Grant, storied credit investor and founder of Grant's Interest Rate Observer, explained the reasoning behind his call that the great secular bond bear market actually began in the aftermath of the UK's Brexit vote during the summer of 2016 - when Treasury yields touched their all-time lows.

Surprisingly, Grant's call isn't rooted in the bold-faced absurdity of Italian junk bonds trading with a zero-handle (although that's certainly part of it). Rather, Grant explained, a historical analysis reveals that bond yields fluctuate in broad-based multi-generation cycles of different lengths. And given the carte blanche allotted to econo...

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Zero Hedge

John Mauldin: Trade Wars Could Trigger "The Next Great Depression"

Courtesy of Zero Hedge

Last week on Erik Townsend's Macrovoices podcast, Jim Grant, storied credit investor and founder of Grant's Interest Rate Observer, explained the reasoning behind his call that the great secular bond bear market actually began in the aftermath of the UK's Brexit vote during the summer of 2016 - when Treasury yields touched their all-time lows.

Surprisingly, Grant's call isn't rooted in the bold-faced absurdity of Italian junk bonds trading with a zero-handle (although that's certainly part of it). Rather, Grant explained, a historical analysis reveals that bond yields fluctuate in broad-based multi-generation cycles of different lengths. And given the carte blanche allotted to econo...

more from Tyler

Digital Currencies

Why accountants of the future will need to speak blockchain and cryptocurrency if they want your money


Why accountants of the future will need to speak blockchain and cryptocurrency if they want your money


Courtesy of Anwar Halari, The Open University

If you haven’t already heard of Bitcoin, you either haven’t been paying attention or you’re a time traveller who just touched down in 2018. Because by now, most of us will have heard of Bitcoin and some of us have even jumped on the bandwagon, investing in cryptocurrencies.

But despite its popularity, many people still don’t understand the technology that underlines it: blockchain. In...

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Insider Scoop

Wendy's 'Intriguing' 2020 Outlook Overshadowed By Valuation Concerns, Oppenheimer Says

Courtesy of Benzinga.

Related WEN Benzinga's Top Upgrades, Downgrades For March 20, 2018 Benzinga's Top Upgrades, Downgrades For March 8, 2018 ... more from Insider

Chart School

Bears Take Control

Courtesy of Declan.

More decisive action from bears today as markets lose support.  The S&P undercut the rising trendline and 20-day plus 50-day MAs in a move which looks like it could develop into a test of the February spike low and the 200-day MA again; support at 2,695 is looking critical here. Aggressive traders could look to buy at these levels but confidence in this holding would not be high.

The Dow also saw its 'bear flag' / consolidation triangle resolve to the downside. The two positives were the relatively light volume and the ...

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Peter Thiel: Need To Rethink Tariffs In Light Of Trade Deficit With China; SF Sucks, Bitcoin Rocks

By VW Staff. Originally published at ValueWalk.

PayPal cofounder Peter Thiel in a wide-ranging interview on President Trump’s trade tariffs, China’s economy, technology regulations and his outlook for bitcoin.


Check out our H2 hedge fund letters here.

Peter Thiel: Need To Rethink Tariffs In Light Of Trade Deficit With China

Peter Thiel On Leaving Silicon Valley For Los Angeles

Billionaire investor Peter Thiel argues Silicon Valley is is a ‘totalitarian place’ where people are not allowed to have dissenting views.


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Members' Corner

Cambridge Analytica and the 2016 Election: What you need to know (updated)


"If you want to fundamentally reshape society, you first have to break it." ~ Christopher Wylie

[Interview: Cambridge Analytica whistleblower: 'We spent $1m harvesting millions of Facebook profiles' – video]

"You’ve probably heard by now that Cambridge Analytica, which is backed by the borderline-psychotic Mercer family and was formerly chaired by Steve Bannon, had a decisive role in manipulating voters on a one-by-one basis – using their own personal data to push them toward voting ...

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How your brain is wired to just say 'yes' to opioids

Reminder: Pharmboy and Ilene are available to chat with Members, comments are found below each post.


How your brain is wired to just say ‘yes’ to opioids

A Philadelphia man, who struggles with opioid addiction, in 2017. AP Photo/Matt Rourke

Courtesy of Paul R. Sanberg, University of South Florida and Samantha Portis, University of South Florida


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Mapping The Market

The tricks propagandists use to beat science

Via Jean-Luc

How propagandist beat science – they did it for the tobacco industry and now it's in favor of the energy companies:

The tricks propagandists use to beat science

The original tobacco strategy involved several lines of attack. One of these was to fund research that supported the industry and then publish only the results that fit the required narrative. “For instance, in 1954 the TIRC distributed a pamphlet entitled ‘A Scientific Perspective on the Cigarette Controversy’ to nearly 200,000 doctors, journalists, and policy-makers, in which they emphasized favorable research and questioned results supporting the contrary view,” say Weatherall and co, who call this approach biased production.

A second approach promoted independent research that happened to support ...

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Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.


This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...

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NewsWare: Watch Today's Webinar!


We have a great guest at today's webinar!

Bill Olsen from NewsWare will be giving us a fun and lively demonstration of the advantages that real-time news provides. NewsWare is a market intelligence tool for news. In today's data driven markets, it is truly beneficial to have a tool that delivers access to the professional sources where you can obtain the facts in real time.

Join our webinar, free, it's open to all. 

Just click here at 1 pm est and join in!

[For more information on NewsWare, click here. For a list of prices: NewsWar...

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Kimble Charting Solutions

Brazil; Waterfall in prices starting? Impact U.S.?

Courtesy of Chris Kimble.

Below looks at the Brazil ETF (EWZ) over the last decade. The rally over the past year has it facing a critical level, from a Power of the Pattern perspective.


EWZ is facing dual resistance at (1), while in a 9-year down trend of lower highs and lower lows. The counter trend rally over the past 17-months has it testing key falling resistance. Did the counter trend reflation rally just end at dual resistance???

If EWZ b...

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All About Trends

Mid-Day Update

Reminder: Harlan is available to chat with Members, comments are found below each post.

Click here for the full report.

To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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About Ilene:

Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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